Sydney

Retailer sentiment improves but remains negative

Negative press on the economy and occupancy costs are the factors weighing most on sentiment but interest rates now a positive influence on future trading prospects

SYDNEY, 24 JUNE 2009 – Retailers in general are more positive about future trading conditions than they were six months ago, according to Jones Lang LaSalle’s latest Retailer Sentiment Survey.

The bi-annual survey conducted nationally in April/May this year recorded retailer sentiment reaching a net balance of -29% of respondents reporting negative trading conditions, which is a significant improvement on the record low -63% net balance recorded in October 2008.

“The last survey was conducted at the time of the collapse of Lehman Brothers, when negative news about the global economy was at fever pitch and before the Reserve Bank significantly reduced interest rates or the Federal Government had provided any fiscal stimulus,” said Jones Lang LaSalle’s National Retail Analyst, Leigh Warner.

“Like consumer sentiment, which has also recovered in recent months, the improvement in retailer sentiment is an acknowledgement that monetary and fiscal policy measures have cushioned Australian consumer spending from the full extent of the global economic slowdown.

“However, there is still clearly some nervousness about what will happen beyond these stimuli, which is evident in a net balance of 49% of retailers surveyed still expecting trading conditions to soften over the next 12 months,” Mr Warner said.

The factors that the Survey highlighted as having the largest impact on future trading conditions over the next twelve months include press coverage of the economy, occupancy costs, the exchange rate (which has subsequently strengthened since the Survey was taken in April/early May), the general economic outlook and general spending levels.

Jones Lang LaSalle’s National Head of Retail, Tony Doherty said the biggest change from the last survey in October last year was the attitude of retailers towards interest rates.

“The major positive to come out of this survey is that interest rates are now seen by retailers as a positive influence on their future trading prospects, after the Reserve Bank cuts to the official cash rate, which is now just 3%. This is in comparison to the last survey six months ago where interest rates were the number one concern of retailers.

“Similarly, if we go further back to the survey results a year ago, petrol prices were the number one concern for retailers, but this time around they have slipped down the list to 9th place in terms of their influence on future trading prospects.”

Mr Doherty said in terms of spending patterns, the survey indicated that around two thirds of retailers reported deterioration in impulse and discretionary purchases, while around half reported slower traffic volumes. At the other end of the spectrum, 23% of retailers surveyed reported an improved response to sales campaigns.

“These trends confirm something we have been seeing quite clearly, that consumers are being more discerning in their spending habits, becoming cost-conscious and thinking twice about non-essential purchases. But while they are tending to spend less on discretionary purchases, they have yet to slow spending on the necessities.

“Jones Lang LaSalle manages a substantial retail portfolio of over 100 shopping centres around Australia and the types of trends we have seen across these centres since the global financial crisis hit is that spending in neighbourhood and sub-regional shopping centres with strong supermarket and food-based retailers is holding up well,” Mr Doherty said.

Despite the subdued outlook for trading conditions, the survey reports that 60% of retailers still have intentions to expand their operations in some form over the next 12 months, with 20% intending to maintain their current size and 20% contracting. Of the 60% of retailers intending to expand, only 6% intend to expand rapidly and the remainder intend to expand marginally or moderately.

“While a lot of retailers still have expansion plan, the reality is that credit constraints and other factors may mean that many retailers are simply unable to expand in the short-term.

“Nevertheless, within our shopping centre management portfolio there are a number of retailers that are performing very strongly and for whom expansion is still a more than viable option whilst they await continued improvement in the retail outlook,” Mr Doherty said.